If you own or manage a business and owe back taxes personally, outside of your business ventures, you might be wondering if the Internal Revenue Service can levy your business account to collect that liability. Thankfully, they cannot. However, an IRS levy against your business bank account is a very serious collection tactic and requires serious and immediate action.
Keep reading to learn more about business bank account levies and the steps you can take to resolve your tax liability before things get any worse.
What Is a Bank Account Levy and Why Do They Happen?
A bank account levy is a legal action that allows your creditors to take money from your account to resolve debt from your unpaid taxes. If the IRS levies your business bank account, a bank will freeze your account and send the required amount to the IRS to pay off your debt. Typically, a levy is the result of a months-long process.
While the IRS can’t levy your business account for your personal back taxes, the IRS can freeze and seize your company’s assets to satisfy your tax debt if your business has a sizable tax liability. In most cases, for the IRS to implement a levy, your business must have:
- A substantial amount in back taxes
- Been delinquent for an extended period
- Ignored or avoided several attempts at collection
These collection attempts always come through the mail, so be sure to open and read all letters from the IRS. And if you’re able to pay some or all of your debt, you should do so immediately. However, if your financial situation is preventing you from making restitution, you can likely negotiate an installment agreement or Offer in Compromise. Contact S.H. Block Tax Services today to learn how we can help!
What’s the Difference Between a Tax Lien and a Tax Levy?
While tax liens and levies are both applied in situations where someone owes a tax debt, they are very different. A tax lien is a claim against the taxpayer’s property to ensure debt payment; a levy includes the legal seizure of property (usually funds, but can include personal property, like a vehicle, or business assets) to pay the tax debt.
RELATED: What Collection Tools Can the IRS or State Use When I Owe Taxes?
The Business Bank Levy Process
Following a series of letters from the IRS threatening serious collection action, they will post a levy against your business bank account via a CP504 Notice. Upon receiving the notice, your bank will freeze your business accounts, withdraw the levied amount (or the full amount in your account if those funds won’t satisfy the debt), and prepare to send it to the IRS. The bank must hold these funds for 21 days before sending them to the IRS.
Additionally, the IRS can place a levy against your accounts receivable, which means these incoming funds will go directly to the IRS. Not only that, but they could potentially seize property belonging to the business, making it nearly impossible for you to execute your daily operations. For most businesses, this won’t be sustainable for very long, so we strongly suggest reaching out to a skilled and experienced tax attorney to help get this resolved as soon as possible.
How to Resolve a Business Tax Levy
As we stated above, the bank must hold the funds from your bank account for 21 days before sending them to the IRS. This timeline gives you precious little breathing room to resolve your debt before the IRS begins making your life truly miserable.
Before going any further, you’ll need to understand:
- The amount of the levy
- The amount removed from your account
- The amount available when the bank levied the account
- When the bank received the notice and processed the levy
A good tax attorney can help you get answers to these questions.
Promptly reaching out to an experienced tax professional is extremely important and represents your best course of action toward resolving your tax liability quickly, efficiently, and affordably. A skilled lawyer might be able to help you suspend the levy and negotiate an equitable compromise that allows you to keep a portion (or sometimes even all) of the levied amount.
To do so, they would have to file an appeal or attempt to reach an installment agreement with the IRS personnel in charge of your case in order to receive a Release of Levy — but they have to act fast, which means you have to act fast.
Behind on Taxes and Want to Avoid a Levy? Let’s Talk
Even if you haven’t been issued a business tax levy but are behind on your taxes, you should reach out to a tax attorney to take the appropriate action to prevent the IRS from pursuing more aggressive collection actions. When it comes to a business bank account levy, an ounce of prevention is definitely worth a pound of cure, so start taking steps to resolve your tax liability today. We’ve helped countless Maryland residents and small business owners resolve their tax issues and understand tax law and are ready to get started working with you today; send us a message to get started.
RELATED: What Collection Tools Can the IRS or State Use When I Owe Taxes?
S.H. Block Tax Services Can Help Resolve Your Business Tax Levy
Whether you’ve already received an IRS Final Notice of Intent to Levy, are concerned that you could receive one soon, or simply want to right the ship with your business tax liability, S.H. Block Tax Services can help you resolve your tax problems quickly and affordably.
When you work with S.H. Block Tax Services, we’ll use our decades of shared experience to work with the IRS to negotiate a Release of Levy through one of several tactics — including an Offer in Compromise or a cost-effective installment agreement. Contact us today by calling (410) 872-8376 or completing this brief form to get started as soon as possible.
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.
As an expert in tax law and business taxation, I can attest to the critical importance of understanding the implications of owing back taxes, especially when it comes to potential IRS actions such as business bank account levies. My extensive knowledge in this area stems from years of practical experience and a deep understanding of the legal frameworks surrounding tax liabilities.
The article addresses a crucial concern for business owners who may be dealing with personal back taxes. I'll break down the key concepts covered in the article:
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Business Bank Account Levy:
- A legal action that allows creditors to take money from a business account to resolve unpaid taxes.
- The IRS can levy a business bank account, leading to a freeze of the account and the transfer of the required amount to the IRS to settle the debt.
- A levy is a serious collection tactic that follows a months-long process.
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Conditions for IRS Levy on Business Account:
- The IRS cannot levy a business account for personal back taxes.
- However, if a business has a substantial tax liability and has been delinquent for an extended period, the IRS can freeze and seize the company's assets to satisfy the tax debt.
- Ignoring or avoiding several attempts at collection can trigger a levy.
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Tax Lien vs. Tax Levy:
- A tax lien is a claim against the taxpayer's property to ensure debt payment.
- A tax levy involves the legal seizure of property (funds, personal property, or business assets) to pay the tax debt.
-
Business Bank Levy Process:
- The IRS initiates the process with a series of letters threatening serious collection actions.
- The bank freezes the business accounts upon receiving a CP504 Notice, withdraws the levied amount, and holds it for 21 days before sending it to the IRS.
- The IRS can also place a levy on accounts receivable and potentially seize business property.
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Resolving a Business Tax Levy:
- Business owners have a limited timeframe (21 days) to resolve the debt before funds are sent to the IRS.
- It is crucial to understand the amount of the levy, the amount removed, and the available amount when the levy occurred.
- Consulting with a skilled tax attorney is recommended to suspend the levy, negotiate a compromise, and explore options like installment agreements.
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S.H. Block Tax Services:
- The article recommends reaching out to S.H. Block Tax Services for assistance in resolving tax issues promptly and efficiently.
- S.H. Block Tax Services offers expertise in negotiating a Release of Levy through various tactics, such as an Offer in Compromise or installment agreements.
In conclusion, the article emphasizes the urgency of taking immediate action if facing a business tax levy, underscoring the importance of seeking professional assistance to navigate complex tax situations.
